Analyzing Lease vs. Buy Decision

To buy or not to buy is the question for many companies acquiring assets for their business. Equipment and other assets are extremely important when a company is trying to get off the ground in a new business. The chief executive officer would have to ask how would we finance the equipment needed, pay back investors, and make the company profitable for all. This new biotech company is seeking financial remedies in becoming a profitable company. Bonnesante` Research Company has 30 employees and located in Irvine, California. They operate on venture capital funding now, which are investors that are offered a stake in a company that has risk of failing or being very profitable. Acquisitions are Bonnesante` major focus area as the company's operations start to gather pace. The company has to decide whether to lease or buy equipment to achieve their goal to stay in the positive. In 2xx1, Bonnesante` Research Company future hinged on summiting the development of an anti-infective drug to the Food and Drug Administration. In 2xx4, the company was making a profit therefore; they required an advanced digital spectrometer to achieve key breakthroughs in their research and development department. They company was doing so good that in 2xx7 Bonnesante` Research Company plan to transform the company into a fully integrated pharmaceutical company with its own marketing and manufacturing operations. With the help of key players like Samuel Malone the chief executive officer, Nicholas Tortelli the chief operating officer, and. Ana Machuca and Consultant. In 2xx1, Bonnesante` required a mainframe computer in their research and development department, so that they would have the ability to run advance analytical software. Their first drug needs to pass trials for the Food and Drug Administration so a mainframe to run the analytical software. They have found a mainframe computer that has both lease and buy options but they need to see the effects of the financing on their cash flow statement. The company has to look at the present value of the outflows for leasing and present value of the outflows from buying the mainframe computer. Now they have to select the optimal mode of financing the acquisition by evaluating the lease and buy options available to them. The available options are at the interest rate of 6 %: Operating Lease Buy Comparison Table Terms (months) 24 Terms (months) 24 Present Value ($000) Down Payment 37,736 Down Payment 220,145 Security Deposit 51.41 Maintenance ($000) 130.00 Operating lease 578 Monthly Payments 25.16 Monthly Payments 55.04 Buy 1844 Samuel Malone the chief executive officer feel that mainframes are being obsolescence and unattractive. Nicholas Tortelli the chief operating officer feels that it would be a long-term strategy and can depreciate the computer. Ana Machuca Consultant feel that the company is not profitable right now and depreciation would not help us gain anything. She also feels that the loan would affect the balance sheet and leasing the mainframe will go on the cash flow statement where we want it to be. . For Bonnesante` financial team the decision was to lease the mainframe computer because the loan options have significantly higher outflows. Moreover, the lease option selected by Bonnesante` of 24 months with a down payment of one-and-a-half months lease amount, has the lowest present value of cash outflows for this duration. A loan driven purchase, however: would require the company to record the asset and a corresponding liability on the balance sheet. Both depreciation and interest payments would be recorded as expenses. Normally, these lower the outflows associated with a loan. However, Bonnesante` is not...

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ACCG 224: Intermediate Financial Accounting
Changes to 'Lease' accounting
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Table of Content
1. Introduction P.2
2. Glossary P.3
3. Discussion P.4
3.1 Description of the current lease contract P.4
3.1.1 Finance Leased and Hire Purchase Assets P.4
3.1.2 Operating Lease P.6
3.2 Summary of the proposed changes to lease accounting P7
3.3 Analysis P.8
4. Conclusion and Recommendation P.10
5. Referencing P.11
1. Introduction
Qantas Airways Limited (Qantas) is a for-profit company limited by shares, incorporated in Australia whose shares are publicly traded in the Australian Securities Exchange (ASX). It is engaged in the operation of the international and domestic air transportation services. According to the Qantas annual report (2013 P.6), it states that the statutory profit after tax amounts to $6 million and underlying profit before tax amounts for$192 million for the 2012/2013 financial year. Its...

...Introduction……………………………………………………………………………1
Leasing vs. Buying a Car………………………………………………………………2
Advantages………………………………………………………………………….….4
Disadvantages…………………………………………………………………..………5
Present Value…………………………………………………………………………...5
Analysis Illustrations……………………………………………………………………6
Conclusion………………………………………………………………………………7
References……………………………………………………………………………....9
The purchase of an automobile is a very important financial transaction one can make. Not only is a car an expensive purchase, it also comes with a cost of maintenance, repair, and once it is driven off the dealers lot, the vehicle becomes an investment that readily depreciates in value. Most buyer looking to purchase a new vehicle must consider a number of issues such as, whether to trade in a current vehicle, how much is the current trade-in worth, and lease or buy options. This paper will examined and analyzed the advantage and disadvantages of the leasevs. buying an automobile.
Leasing vs. Buying a Car
There are many pitfalls that today’s consumer must maneuver when contemplating on a financially large purchase. Many must decided if a leasing a car over buying a car will benefit them or their families in the long run. Factor such as, “budget constraints may influence make or buydecisions. If a buydecision is to be made, then a further...

...software for the preparation of the drug, it needs to acquire mainframe computer. Now the decision needs to be taken to either lease or buy the mainframe computer.
SOLUTION 1:
As a CFO of Bonnesante Research company, by taking my colleagues opinion into consideration, I have decided to lease the mainframe computer for 18 months instead of buying it.. The reason being is that the loan options were proposing significantly higher outflows and the leasing option of 18 month with no money down proposed the lowest present value of the cash outflows of the duration. Since Bonnesante is not a profitable company due to this reason the expenses for buying an asset will not be tax deductible, and loaning option will also require to record the transaction and corresponding liability on the balance sheet. But through the operating lease option, an asset will not need to be reported on balance sheet. Moreover, the technology can be outdated in the future and there could be a need of upgrading it. Due to all those reason, operating lease is the best option that a company has at this moment.
SCENARIO 2:
Another scenario is that the Bonnesante requires an advanced spectrometer for its Research and Development program. The cost of this spectrometer is $2,000,000 but Bonnesante is now operating as a profitable firm. The options are to do a short term operating lease, a long...

...When an individual is trying to decide whether or not to lease or buy, he or she needs to know the purchase cost, the lease cost, as well as the interest rate of a loan that will be used to purchase the item. The residual value of the item also must be known up front to help determine if leasing is the better option. When determining whether to lease or buy, the cash flow for both should be compared so the best decision can be made. Below is a chart on leasevsbuy. (www.smartcomputing.com; Retrieved November 6, 2006)
Lease/Buy
Cash Flow - Usually better from a short-term cash flow perspective. Frees up cash for other purposes while you generate income to pay the leases. You pay less overall but need to have available cash. Financing as an alternative costs more than a lease.
Tax Treatment - If properly structured, a lease may give your company a larger expense write-off than a purchase. Consult your tax advisor. Depreciation write-off is based on IRS rules for the type of equipment that you are buying. Consult your tax advisor.
Upgrades- Many lease companies let you upgrade to newer equipment during the term of the lease without renegotiating.
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...BUYVSLEASE SCENARIO
* What recommendation does the calculator make for you?
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Read more: Car Lease Calculator Lease or Buy New Car Auto provided by Bankrate.com http://www.bankrate.com/calculators/auto/buy-or-lease-calculator.aspx#ixzz1JZ1zKVUt
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...many consumers are faced with many choices of financing, and part for the decision that needs to be addressed is buying or leasing. In this paper we will look at the differences between buying and leasing a new automobile.
Automobiles
In America, cars have become a way of life, and most people could not live without one. They have also become the second largest financial commitment that most people will make, outside of buying a house, and for some people, there car will cost more then their house (Bauldings, 2004).
Lease Versus Buying
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...References 5
V. Appendix 6
I. Introduction
Overview
This case provides real estate market data for the analysis of an office lease-or-buydecision. The case demonstrates what is known as the “leasing puzzle” – the answer simply being that the two forms of financing are not cost equivalent in the presence of capital market imperfections, despite both being credit forms. The case presents two opposing anecdotes: one about a trading company that bought its office and profited hugely from this decision as the market and capital values move upwards, but then faced huge losses as the market declined; and another from a comparable trading company leasing office space, and applying its capital to grow the trading business without diversion.
The Company
Sunny Trading Company Limited is a Hong Kong based company dealing in toy trading. It rented “Grade A” office space in the Wanchai district. The office space was a gross floor area of 250 m2 with a conference room, reception area, an open space with partitions for staff, a computer server room, and a kitchen area. In 2002, the company’s lease was up for renewal. The rent was set to increase by 10 percent. An attempt to negotiate a lower rent failed, thereby, making Sunny Trading Co. consider the option of buying office space. Which option would benefit Sunny Trading Co: continue the lease or buy office space?...